Part 1: what was the final outcome?
Last month, the legislative amendments to superannuation in the May 2016 Federal Budget were officially enacted and granted Royal Assent, solidifying their status as the law. These changes have significant implications for SMSF accountants and their clients.
A summary of the final superannuation reforms is as follows:
- The annual limit of Non-Concessional Contributions (“NCCs”) will be reduced to $100,000 from the current cap of $180,000 from 1 July 2017
- no NCCs will be permitted once the super balance exceeds $1.6m
- The 3-year “bring forward” NCC provision is still available however, the maximum bring forward from 1 July 2017 will be $300,000 (currently $540,000)
- the current maximum bring forward remains at $540,000 up until 30 June 2017 (for individuals less than age 65)
- special transitional rules apply where this brings forward period overlaps 1 July 2017
- Work tests for individuals aged 65 to 74 will continue to apply
- The concessional contributions cap will be reduced to $25,000 from 1 July 2017 (currently, for individuals 48 or under, it is $30,000, and for those 49 and over, it is $35,000)
- the catch up concessional contributions for individuals with superannuation balances of less than $500,000 to ‘carry forward’ unused concessional cap space for up to five years are now to commence from 1 July 2018
- 10% employment income test removed from 1 July 2017
- the current requirement for an individual to claim a personal tax deduction for super contributions includes the requirement of having less than 10% of their income from salary and wages; this criterion will be removed, but all other criteria will remain unchanged
- $1.6m transfer cap balance from 1 July 2017, limiting the amount held in the pension phase and receiving tax-free earnings
- $1.6m pension account threshold and asset segregation – for those members with more than $1.6m in pension assets, segregation will not be permitted
- this will include reversionary pension accounts and death benefit income streams being counted towards the beneficiaries’ $1.6m transfer cap balance
- this $1.6 cap will not apply to Transition to Retirement (“TTR”) pensions
- Transitional CGT relief and cost base reset elections available to fund members where they exceed the $1.6m transfer balance cap and reallocate benefits from the retirement phase to the accumulation phase
- applicable for assets held on or after 9 November 2016 to 30 June 2017
- special rules apply if the fund had segregated assets as of 9 November 2016
- Restrictions on accessing TTR pensions from 1 July 2017
- the earnings on assets supporting a TTR will no longer be tax-free and will be taxed at 15%, regardless of the TTR start date
- payments from a TTR can no longer be classified as lump sum payments
- Reduction of the Division 293 Tax Threshold for high-income earners
- the threshold will be lowered to $250,000 (from the current $300,000), at which high-income earners pay additional contributions tax on their concessional contributions.
In summary, most of the above changes are effective from 1 July 2017. Therefore any changes to your existing SMSF to ensure it complies with these new laws need to be considered in the lead-up to year-end.
Kreston Stanley Williamson Team
*Correct as of January 2017
Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
